The price of Emerson Electric (EMR) had been basing for the past seven or eight months (see the chart below), but Thursday's rally was an eye popper. What's next?
In this chart, above, we can see how forward-looking investors have been buying dips below $45 for several months. Both price and the On-Balance-Volume (OBV) line made double bottoms in September and January. The rising OBV line confirms the price gains and a new high in the OBV line is very positive with the new price high.
EMR is above the 50-day moving average and its slope has been positive since February. EMR is also above the slower 200-day average line. Prices had broken above the November high earlier this month, but yesterday's rally was awesome (a technical term meaning impressive).
This longer-term view of EMR, above, shows the decline and the double bottom pattern. Prices have rallied nicely above the 40-week moving average line. The OBV line has turned up with prices on this time frame, telling us that buyers of EMR are aggressive. And we can see a bullish divergence between the price action of the double bottom pattern and the momentum indicator which made a much higher low on the "retest".
When chartists work with bar charts, the convention is to use the height or amplitude of the pattern to get an idea or estimate of the price target. When you take the height of this double bottom pattern and project it upward from the "neckline", you get a price objective in the low $60s.
The road upward won't be as sharp and dramatic as yesterday's rally, so traders should be prepared for corrections along the way.
